Direct expenses
Prime cost
Administration overheads
Selling overheads
Price of job
Profit/ (loss)
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ACCA F 2
Mostly tested questions
Critical areas
Page | 2
Production overheads: Make sure that you can calculate OAR (overheads absorption
rate).
OAR = Budgeted overheads/ budgeted activity. Absorbed overheads = OAR X actual
activity.
Non production overheads: Read the question carefully and see how to absorb non
production overheads.
Calculation of profit: Read the question and see whether profit is % of cost or selling price.
Mark up on cost
Cost
100
Profit (e.g.20%)
20
Selling price
120
Margin of sales
Selling price
100
Profit (e.g.20%)
(20)
Cost
80
The following information relates to job 2468, which is being carried out by AB Limited to
meet a customers order.
Department A Department B
Direct materials
$ 5,000
$ 3,000
Direct labour hours
400
200
Direct labour rate per hour
$4
$5
$4
$4
Production overheads per direct
labour hour
Admin and other overheads
20 % of full production cost
Profit margin
25 % of sales price
What is the selling price of Job 2468?
A. $ 16,250
B. $ 17,333
C. $ 19,500
D. $ 20,800*
Solution:
Direct materials (5,000 + 3,000)
Direct labour (400 x 4 + 200 x 5)
Production overheads (400 + 200) x 4
Production cost
Admin cost (13,000 x 20%)
Saima Iqbal
$
8,000
2,600
2,400
13,000
2,600
Management Accounting
Q.2
Total cost
15,600
Selling price (15,600/75x100)
20,800
A company is preparing for job X112. The job requires materials worth $1,350 and 150
hours of labour. Labour is paid at $6 per hour; variable overheads are absorbed at a rate
of $2 per labour hour and fixed overheads at a rate of $3 per labour hour.
Required
(a) What is the selling price of job X112 if the company wants to earn a margin of 25%?
(b) What is the selling price of job X112 if the company wants to earn of mark-up of 25%?
Solution:
$
Direct materials
1,350
Direct labour (150 x $ 6)
900
Production overheads (150 x $ 5)
750
Production cost
3,000
Selling price 3,000/75 x 100
4,000
Selling price 3,000/100 x 125
3,750
BATCH COSTING
Questions:
1. P Limited manufactures ring binders which are embossed with the customers own logo. A
customer has ordered a batch of 300 binders. The following illustrate the cost for a typical
batch of 100 binders.
Direct materials
Direct labour
Machine set up
Design and art work
Prime cost
$
30
10
3
15
58
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ACCA F 2
P Limited requires a profit margin of 25% of sales value.
The selling price for 300 binders (to the nearest penny) will be:
Page | 4
A.
B.
C.
D.
$ 189
$ 193.20
$ 201.60
$ 252*
Solution:
Prime cost ($ 58 x 3)
Overheads ($ 10 x 3 x 20%)
Selling, distribution and admin overheads
(180 x 5%)
Total cost
Selling price (189/75x100)
Saima Iqbal
$
174
6
180
9
189
252